As a result of a search in a group company that demonstrated the keeping of accounts outside of ordinary books, addition u/s 69C was upheld

Fact and issue of the case

Feeling aggrieved and dissatisfied with the impugned judgment and order dated 23.02.2010 passed by the High Court of Gujarat at Ahmedabad passed in Tax Appeal No. 2186 of 2009, by which the High Court has allowed the said Appeal preferred by the assessee and has reversed the judgment and order passed by the ITAT restoring the Assessment Order passed by the Assessing Officer upholding the additions of Rs.17,15,00,000/- as unexplained expenditure under Section 69C of the Income Tax Act, 1961 (for short “the Act”), the Revenue has preferred the present appeal

At the outset, it is required to be noted that, in the present case, considering the material on record, the Assessing Officer made additions of Rs. 17,15,00,000/- as unexplained expenditure under Section 69C of the Act taking into consideration the actual consumption of diamonds as 4,30,701.14 carats as mentioned in the audit report and after considering the consistent trend on yield which was found to be between 10-18%, the Assessing Officer made the aforesaid additions. The Assessing Officer also considered the alternative prayer made by the assessee on claiming deductions as expenditure under Section 80HHC. The CIT (Appeals) reversed the addition. The ITAT, on appreciation of the entire material on record and even after taking into consideration the remand order which was necessitated due to the affidavits filed before the ITAT of the Typist and the Chartered Accountant, reversed the order passed by the CIT (Appeals) and restored the Assessment Order by upholding the addition of Rs.17,50,00,000/- as unexplained expenditure under Section 69C of the Act. By the impugned judgment and order, the High Court has set aside the order passed by the ITAT solely relying upon the two affidavits – one of the Typist and another of the Chartered Accountant and accepted the submission on behalf of the assessee that there was a typographical error in the audit report in which the consumption was shown at 4,30,701.14 carats and that the actual consumption was 2,90,701.14 carats

In light of the above, the impugned judgment and order passed by the High Court is required to be considered

We have heard Shri N. Venkataraman, learned ASG, appearing on behalf of the Revenue

Though served, none has appeared on behalf of the respondent- assessee.

Shri N. Venkataraman, learned ASG, has taken us through the findings recorded by the Assessing Officer on the actual consumption and the yield in the respective years. It is submitted that, in the audit report, it was specifically mentioned that the consumption was 4,30,701.14 carats and on that basis the Assessing Officer proceeded further and considered that the difference between the declared carats and the carats mentioned in the audit report can be said to be de hors the books of accounts/unaccounted and therefore the Assessing Officer rightly made the additions as unexplained income under Section 69C of the Act taking into consideration the trend with respect to the consumption in the last few years. It is submitted that, as such, the affidavits of the typist and the Chartered Accountant were filed for the first

time before the ITAT and, in fact, the Assessing Officer submitted his comment in the remand report also. It is submitted that, while passing the impugned judgment and order, the High Court has solely relied upon the affidavits of the Typist and the Chartered Accountant and the High Court has not at all considered the conduct on the part of the assessee and its associates, which came to be considered by the Assessing Officer as well as the ITAT

Making the above submissions and relying upon the findings recorded by the Assessing Officer, which came to be affirmed by the ITAT, it is prayed to allow the present Appeal

Observation of the court

We have gone through the findings recorded by the Assessing Officer, CIT (Appeals) as well as the ITAT. Before the Assessing Officer, though it was the specific case on behalf of the assessee that the figure of Rs.4,30,701.10 was a typing mistake, except the statement of the assessee, no further material was produced before the Assessing Officer. Therefore, the Assessing Officer proceeded further with the assessment taking into consumption of 4,30,701.14 carats. That thereafter, considering the figure of yield in different assessment years, the Assessing Officer came to the conclusion that the percentage of the yield would be ranging between 10-18%. That thereafter, the Assessing Officer specifically gave the finding that taking into consideration the figures on record for the relevant year under consideration, the yield would come to 24%. Therefore, taking into consideration the average yield in the last assessment years, the Assessing Officer treated the same as unexplained income and made the additions of Rs.17,50,00,000/- under Section 69C. The ITAT has concurred with the said findings. As observed hereinabove, solely relying upon the statements of the Typist and the Chartered Accountant, the High Court has reversed the findings of the Assessing Officer as well as the ITAT. The High Court has also not properly appreciated and considered the fact that the affidavits were filed for the first time before the ITAT. The High Court has also not at all considered the conduct on the part of the assessee, which came to be considered in detail by the ITAT in para 10 of the order passed by the ITAT. It was found that there has been search in the case of the assessee and its group concern on 07.01.1999 which was concluded on 23.03.1999 and during the course of the search, duplicate cash book, ledger and other books showing the unaccounted manufacturing and trading arrived at by the assessee in diamonds were found. The ITAT has also noted that the huge addition was made in the case of assessee’s group in the block assessment on the basis of the books so found. Therefore, it was found that the assessee was maintaining the books of accounts outside the regular books. The aforesaid has not at all been considered by the High Court, while passing the impugned order

In view of the above and for the reasons stated above, the impugned judgment and order passed by the High Court is unsustainable and the same deserves to be quashed and set aside and is, accordingly, quashed and set aside. The order passed by the ITAT as well as the Assessment Order are restored

The present Appeal is, accordingly, allowed. No costs